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The interaction effects of rising life expectancy and the public pension burden on aggregate savings and economic growth

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  • Lei He

    (Hunan Normal University)

  • Zhengqi Wang

    (Hunan Normal University)

Abstract

We evaluate the interaction effects of rising life expectancy and the public pension burden on economic growth by proposing a theoretical model based on an overlapping generations framework. Testable implications from the theoretical model are that the public pension burden impairs the positive effect of increased life expectancy on the aggregate savings rate in the same period and reduces the positive effect of life expectancy on the economic growth rate in the next period. Meanwhile, rising life expectancy intensifies the negative effect of the public pension burden on the aggregate savings rate and economic growth. A panel data set on OECD countries is used to provide empirical support for these predictions. Our results reveal the complicated relationships among rising life expectancy, a high public pension burden, and growth. It would be valuable for the government sector to adjust its spending to deal with fiscal pressure from public pensions.

Suggested Citation

  • Lei He & Zhengqi Wang, 2023. "The interaction effects of rising life expectancy and the public pension burden on aggregate savings and economic growth," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(2), pages 229-250, May.
    • Handle: RePEc:spr:portec:v:22:y:2023:i:2:d:10.1007_s10258-022-00208-z
    DOI: 10.1007/s10258-022-00208-z
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